Daily Update: May 19, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Is Economic Growth Always Dirty?

For over a century, economists have celebrated economic growth as beneficial to society. Our economies and financial systems are oriented around the goal of growth. But the impact of carbon emissions from fossil fuels and the effects of climate change are raising questions about whether growth is good or desirable in all cases. S&P Global Ratings Global Chief Economist Paul Gruenwald examined the relationship between growth and environmental impact in depth in the recent report, “Could Green Growth Be An Oxymoron?”

For the purposes of the analysis, Gruenwald simplified economic activity into a two-sector model, comprising a “green” less-polluting sector and a “brown” more-polluting sector, to examine the trade-offs between economic growth and environmental impact. Gruenwald’s analysis demonstrated that growth is not necessarily unambiguously positive when the lens of environmental damage is added to the picture.

Technological change has been a key driver of economic growth in the past. Techno-optimists believe that technology could, and will, give us the ability to reduce the environmental impact of future economic activity. However, others have argued that the historical record indicates that it is hard to decouple the two factors. Canadian scientist Vaclav Smil, mentioned by Gruenwald in the report, has questioned the environmental sustainability of economic growth in the past. Tim Jackson, director of the Centre for the Understanding of Sustainable Prosperity, also questioned our capacity to decouple growth and emissions during an interview on S&P Global’s “Essential Podcast.”

“That sense in which we cling to another belief, which is that technology can save us, is also potentially a dangerous one because it stops us looking at the realities,” Jackson said. “And the historical realities are quite profound that we have not decoupled our carbon emissions … fast enough in human history in terms of what we have to achieve now in the climate transition to net-zero carbon.”

While decoupling has not yet occurred, Gruenwald suggested that green growth is possible when there's a balance between the negative environmental impact of economic activity and the sum of natural regeneration and human-made offsets. Technological solutions, such as cheap and effective carbon capture or nuclear fusion, could facilitate green growth. But, without measuring and pricing the full economic and environmental costs of producing goods and services, green growth is a rhetorical, rather than a practical, goal.

Absent technological change, Gruenwald demonstrated that increasing the resources available has a negative environmental impact. In Gruenwald’s model, environmental impact rises linearly with economic activity: The addition of people, land or capital to an activity intensifies environmental damage. This means that a country with a shrinking population or a contracting economy would likely have less of an environmental impact. But there are negatives associated with contraction. Reducing the size of the pie has not historically led to greater equality. This pushes us back toward the idea of innovation. 

“The results of our model so far suggest that achieving green growth — where output expands but the environmental impact does not — may be problematic,” Gruenwald wrote. “Indeed, focusing on the environmental impact seems to suggest that economic activity may need to be lower than it currently is, or leapfrog innovation must take place to arrest the ongoing deterioration of the environment.”

Today is Friday, May 19, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

Emerging Markets Monthly Highlights: Crossing Inflation Peak

March and April data confirm that emerging markets (EMs) have broadly passed their inflation peaks, given decreasing energy prices and strong base effects. However, food inflation remains stickier than previously expected, particularly among food importers, as the effect of previously weak exchange rates and high fuel costs lifts domestic food prices. S&P Global Ratings expects disinflation to be gradual across most EMs, and with a few exceptions, it currently expects EMs to reach their respective central bank targets by the end of 2024.

—Read the report from S&P Global Ratings

Access more insights on the global economy >

Capital Markets

Private Equity Investment In Streaming Media Companies Falls In 2022

Private equity and venture capital firms invested $370 million into streaming media companies worldwide in 2022, down 73% from $1.38 billion of investments in 2021, S&P Global Market Intelligence data shows. The number of private equity-backed transactions involving companies that provide video streaming service, audio streaming and television shows fell to 29 from 35 during the period. So far in 2023, there have only been three such deals announced or completed. These were funding rounds that involved Rarefied Atmosphere Inc. and Bluestack Systems Inc. in February and Sensei Ltd. in April.

—Read the article from S&P Global Market Intelligence

Access more insights on capital markets >

Global Trade

Atlantic Panamax Spot Freight Slides On Deteriorating Fundamentals

Bearish sentiment and sliding freight levels so far in 2023 have surprised many Atlantic Panamax market participants, who were previously expecting the rapid recovery seen in rates between late February and early April to continue throughout the year's second and third quarters. Despite the optimistic outlook for Brazilian seaborne grain exports in 2023, downward pressure has dominated the Atlantic Panamax market since mid-April, with freight rates in key routes now treading about 20% below the yearly peak levels and market participants reporting a lack of urgency in fixing.

—Read the article from S&P Global Commodity Insights

Access more insights on global trade >

Sustainability

Economic Research: Could Green Growth Be An Oxymoron?

Using a simple two-sector model to examine trade-offs between economic growth and its environmental impact, S&P Global Ratings Chief Economist Paul Gruenwald shows that higher output is no longer unambiguously positive. Technological change takes on a broader meaning in our model where it can reduce the adverse environmental impact of a given output level, while its usual interpretation as a precursor of higher productivity, although still important, can no longer suffice in a world seeking sustainability.

—Read the report from S&P Global Ratings

Access more insights on sustainability >

Energy & Commodities

Listen: The Waiting Is The Hardest Part: Global Polymer Markets Awaiting Rebound In Domestic China Demand

Kristen Hays, global market lead for polymers at S&P Global Commodity Insights, sat down with three polymer market experts at SPGCI to discuss the state of play as a rebound in China's domestic demand remains key to buyers and sellers worldwide. Joining Hays were Heng Hui, senior editor in Singapore whose coverage includes Asian polyethylene, and Fumiko Dobashi, also a senior editor in Singapore whose coverage includes Asian polyvinyl chloride, and Preeti Bhagat, associate editor in Gurgaon, India, who covers India's polyethylene and PVC markets.

—Listen and subscribe to Commodities Focus, a podcast from S&P Global Commodity Insights

Access more insights on energy and commodities >

Technology & Media

A Revolutionary Road

Electric vehicles are sweeping the markets at an astronomical pace. In 2022, more than 8 million battery electric vehicles were produced worldwide, 75% more than the previous year. In a span of only 10 years, BEVs have been transformed from being merely a rounding error in global auto production to gaining double-digit market share. The combination of cost reduction and aggressive net-zero carbon emission policies supports the continuation of this trend. S&P Global Mobility forecasts that by 2030, full electric vehicles will exceed 40% of global market share in terms of yearly production.

—Read the article from S&P Global Mobility

Access more insights on technology and media >